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TMCNet: Washington tries to lure China investors [The Seattle Times]

[August 30, 2010]

Washington tries to lure China investors [The Seattle Times]

(Seattle Times (WA) Via Acquire Media NewsEdge) Aug. 30--Washington state is making a major push to attract Chinese investment, a sign of how the world economy has shifted from a decade ago, when the state's trade missions focused mainly on opening the door for local companies to do business in China.


Gov. Chris Gregoire is heading to China in two weeks, bringing agriculture, education and tourism officials, representatives from two dozen companies and a 240-page guide in Chinese and English about how to do business in Washington.

China has overtaken Japan as the world's second-largest economy. It has more than $2 trillion in foreign reserves and, as Japan did in the 1980s, China is shopping for investment opportunities abroad. Seattle companies and technologies, including medical devices and clean energy, are among its targets.

At the same time, economic rifts between the U.S. and China seem poised to ignite a trade war. The U.S. trade deficit rose to $50 billion in June, and some in Congress are threatening to retaliate against China for manipulating its currency to keep its manufactured goods cheap and its exports growing.

Attracting Chinese direct investment into Washington state can boost efforts to rebalance trade and defuse some of those tensions, supporters say. But that comes with its own set of cultural and political challenges.

For one thing, most Chinese companies big enough to pursue the strategy to go abroad are partly or fully owned by the government, said Charles Duan, a Shanghai attorney who earned a law degree from the University of Washington and opened the first private law firm in China. "They basically can get unlimited support from the banks," which are government-owned, he said.

While Chinese investments overseas have increased dramatically in the past three years, he said, here in the U.S. most of those deals have been limited to real estate or immigration.

That's because many Americans and Europeans feel uneasy about China's state-owned companies making major investments or acquiring companies, Duan said.

In 2005, Congress rejected an attempt by China National Offshore Oil Corporation (CNOOC) to buy Unocal in California after opponents raised national security concerns. The bitterness of that rejection lingers among Chinese investors. Gregoire wants to show that Washington state is more welcoming. During her trip to Shanghai and Beijing, she's holding meetings with Chinese investors with the goal of bringing more of them here. She said she'll talk about Washington's long history of positive relations with China, and how small companies that started here with good ideas have gone on to become global leaders.

Business trips In June, the state's Commerce Department and the Washington State China Relations Council conducted a four-hour seminar in Mandarin Chinese on investment opportunities for a delegation of 200 Chinese business and government leaders stopping in Seattle on their way home from a G-20 business summit in Toronto.

That followed a visit by a Shanghai real-estate mogul, Jiang Zhaobai, who is looking for U.S. technology companies to invest in and made a pitch for a center he built in Shanghai with office space and services for small and medium-sized American companies. Jiang said he hopes to invest as much as $500 million in companies with promising technology and help them expand their business to China.

Jiang opened an office in Seattle with his partners, Joseph Massey and Lee Sands, formerly chief trade negotiators with China for the U.S. Trade Representative.

Over the next several weeks, they met with local companies to discuss possible investments. The exchanges led to some interesting lessons. Local companies learned that while a device to dissolve blood clots could find strong demand in China, software to record and distribute government meetings would not.

"Everything they had lined up I thought was a great way to take a product to China," said Adam Rivas, chief executive of AV Capture All, an Olympia software company. After discussions with potential investors he realized that wasn't likely. "Unfortunately for us about the last country in the world thinking about open government would be China," he said.

Three companies from the Seattle area, including EKOS and Iverson Genetics, traveled to Shanghai to talk further with Jiang and other potential Chinese investors.

Bothell-based EKOS, which developed a device to dissolve blood clots by integrating a catheter with an ultrasound transmitter, is considering a partnership with Jiang's company, the Pengxin Group.

EKOS had no immediate plans for Asia and wasn't looking for investors, but money from China might "allow us to leapfrog or advance some of our clinical studies programs" while offering expertise in the China market, said Doug Hansmann, EKOS co-founder and chief operating officer.

Safeguarding the intellectual property is a top concern, he said, which is one reason why EKOS wanted production to stay in Bothell. "They seem pretty clear they were not seeking to bring manufacturing into China," Hansmann said. " ... What they did want was to introduce technology into China." Massey and Sands argue that increasing both U.S. exports and direct foreign investment from China are the best solutions for reducing the trade deficit.

Bill Stafford, president of the Trade Development Alliance of Greater Seattle, said more investment by China will only be effective against the trade deficit if jobs and manufacturing stay here. If companies invest in Washington for a name brand but move most of their operations overseas, that's not the same thing.

Philips and Siemens bought companies here and expanded them, showing cases where foreign investment can be positive and create jobs, he said.

Chinese companies don't have such a good track record of employing locals where they've invested around the world, Stafford said, because most of the money has gone to buy resources or brands.

Cultural challenges Randy Aliment, a partner at the law firm Williams Kastner who is participating in the governor's trip, said other companies such as Greater China Industries, a Bellevue company started by China native Ben Zhang, have paved the way here.

The main challenges for newcomers are cultural.

"Some of the laws are very different here, such as labor laws and employment laws," Aliment said. "Things you and I take for granted are very novel to them. But that's not necessarily different for a Chinese company than for any foreign business person." In the next few years, as China allows its currency to be traded more freely, "Chinese companies will go to various markets to establish their local presence big time," Duan said.

As places like Washington state consider more direct investment by China and other moves to shore up the economy, people should not base decisions on ideology, Duan said. "Base it on the real economy and what is good for people's lives." Kristi Heim: 206-464-2718 or kheim@seattletimes.com To see more of The Seattle Times, or to subscribe to the newspaper, go to http://www.seattletimes.com.

Copyright (c) 2010, The Seattle Times Distributed by McClatchy-Tribune Information Services.

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